A recent decision of the Court of Appeal has once again bought the nature and effect of water permits to the forefront – but has the Court of Appeal finally turned off the tap on this debate?

Water in New Zealand is a scarce resource. There isn’t enough water when and where we need it the most. As a result, for many primary industries, water has become a hot commodity. Regional councils around New Zealand allocate water-takes and discharges using the Resource Management Act 1991 (‘RMA’).

In some regions, where over-allocation exists, the scarcity of water has resulted in an emerging market for the ‘trading’ of water, which begs the question – exactly what does a water permit entitle the holder to?

The recent Court of Appeal decision Hampton v Canterbury Regional Council has considered the extent to which a second resource consent can derogate from the grant of an earlier consent authorising the same activity.

In making its decision, the Court of Appeal considered the earlier High Court decision Aoraki Water Trust v Meridian Energy Ltd in which the Court applied the doctrine of non-derogation from grant under the RMA for the first time. The High Court in Aoraki held that water rights were analogous to a licence coupled with a right to use the resource similar to a profits a prendre. The Court of Appeal in Hampton considered this analogy to be problematic.

In this respect, the Court of Appeal disagreed with the High Court and considered that a resource consent (water permit) does not create a right to property. Rather, once a permit is granted, it simply amounts to a right to carry out the activity under the RMA – in this case the right to take and use water.

The Court’s decision is perhaps unsurprising given the express statement in the RMA that resource consents are neither real nor personal property. Further, water in its natural state has not generally been regarded as something that can be owned as property in New Zealand.

Post the Court of Appeal’s decision, a water permit is still a valuable resource and the RMA does allow water permits to be transferred (including for a limited period and/or payment) in accordance with s 136 of the RMA. However, holders of water permits cannot use or sell a permit as freely as other commodities.

Read below for a full analysis of the case.Hampton v Canterbury Regional Council (Environment Canterbury) [2015] NZCA 509

In Hampton, the Court of Appeal dismissed an appeal by Simon Hampton against a decision of the High Court. The High Court had dismissed Simon’s judicial review of a decision of the Canterbury Regional Council (‘ECan’) to grant a water permit to Simon’s cousin, Robert Hampton.

The Facts

Simon and Robert occupy adjoining farms in Canterbury. As a result of a series of resource consent applications, Simon obtained a water permit allowing him to take water to irrigate Robert’s land. The intention was that Simon and Robert would reach agreement as to the terms on which water could be taken and used by Robert on his land. However, as it transpired, the cousins could not agree.

Because water in the area was already over-allocated, Robert was unable to simply obtain his own consent to take additional water. As a result, ECan adopted an innovative solution – it granted Robert a right to take water to the extent that Simon’s right to use water to irrigate Robert’s land was not being exercised.

Context

For most of the time period relevant to this case, ECan had a proposed Natural Resources Regional Plan (‘NRRP’). The NRRP addressed the rapidly emerging issue of over-allocation of ground water resources in Canterbury by creating groundwater allocation zones and providing a methodology to allocate water not yet allocated to applications for water permits.

Water applications must be heard on a first come first serve basis and, as predicted, there was not enough water to go around. The scarcity of water available for allocation meant that applicants increasingly sought to utilise s 136 of the RMA which allows holders of water permits to transfer the whole or any part of the holder’s interest in a water permit in certain circumstances. As a result of the limited water supply, water became a hot commodity in the region and a market developed in which water was essentially traded. Basically, a person could buy or lease water which was the subject of an existing permit.

Simon asserted that he suffered a loss as a consequence of the permit granted to Robert. A key claim in Simon’s case was that the Council should have considered the significant economic impact on Simon when granting the permit to Robert.

Issues

Simon complained that ECan’s decision to grant a permit to Robert suffered from the following errors of law. It:

Breached Simon’s legitimate expectation;

Amounted to a derogation from the right conferred by the water permit granted to him; and

Was affected by predetermination and bias.

Simon alleged that granting of the permit to Robert interfered with his property rights, specifically his ability to sell his water right to a third party. All of Simon’s claims were rejected by the High Court. That decision was upheld by the Court of Appeal in this case.

In its decision, the Court drew attention to a condition placed on Simon’s water permit that limited the use of water on Robert’s land. This condition had been imposed essentially at the invitation of Simon and was designed to assure the Council that a portion of the water would only be used to irrigate on Robert’s land. The Court held that it was clear that it was anticipated that an agreement would be reached between the two cousins, but this did not occur. Having proceeded with an application relating to both his own and Robert’s land, it was inconsistent for Simon to now argue his consent should be varied so it can instead be applied to his own land and a neighbour’s land.

The Court considered it to be unrealistic to suggest Simon had a legitimate expectation that he would be able to transfer the permit; as such an expectation would run contrary to the condition on the consent.

In its judgment, the Court of Appeal considered the High Court decision of Aoraki Water Trust v Meridian Energy Ltd relied on by Simon. In that case, the Court applied the doctrine of non-derogation from grant under the RMA for the first time. While the Court distinguished Aoraki on the facts before it, it considered the analogy the High Court drew in that case to profits a prendre and non-derogation from grant to be problematic.

In this respect, the Court of Appeal disagreed that once a water permit is granted it creates a right to property. Rather, the Court of Appeal considered that once a permit is granted, it simply amounts to a right to carry out the activity under the RMA – in this case the right to take and use water.

This article was authored by Anna Cameron, a solicitor in our Environment and Planning team.